Caring for seniors is not an exciting business, but it is well-positioned
demographically. As the population ages, more people need assisted support,
either in retirement residences or in their own homes. One of the Canadian
leaders in this field is
Extendicare (TSX: EXE), which has been providing these services for over 50 years. I recommend it
for investors who are looking for above-average cash flow and are not
overly concerned about capital gains. Here are the details. Prices are as
of Sept. 6.

The business:
Extendicare is a leading provider of care and services for seniors
throughout Canada. The company operates a network of 120 senior care and
living centres (67 owned/53 managed), as well as providing home health care
operations through ParaMed. It employs 23,700 people.

The security:
I recommend the common stock of this company, which trades on the TSX under
the symbol EXE. It is also available through the U.S. over-the-counter
market, with the ticker EXETF.

Why I like it:
The company can rely on steady income to fund its dividend, and the yield
is a very attractive 5.7%. There is not much upside potential to the stock
in the short term, but for those interested in cash flow, that should not
be a serious problem.

Financial highlights:
Second-quarter revenue was $279.5 million, up 2.1% from the same period in
2017. For the first half of the fiscal year, revenue was $550.9 million, a
1.5% increase.

Net operating income from Canadian operations was up 11.3%, to $36.3
million in the quarter, with a margin of 13% compared with 11.9% in the
same period of 2017.

Adjusted funds from operations (AFFO) was $17.1 million ($0.194 per basic
share), up $2.7 million from last year. For the first half, AFFO was $31.8
million ($0.360 per share), up $4.7 million. Dividends declared were $21.1
million, representing approximately 67% of AFFO. This indicates there is
ample coverage for the dividend.

Risks:
The stock can be volatile at times. Over the past five years, it has ranged
from a high of over $10 to a low of close to $6. It is currently in the
middle of that range. As with most high-yielding dividend stocks, it is
sensitive to interest rate risk. Obtaining qualified staff, especially
personal support workers, is an ongoing problem.

There is also some political risk. Regulation of nursing homes is a
provincial responsibility, and governments provide significant funding. A
cutback in a provincial budget could negatively impact Extendicare’s
revenue.

Distribution policy:
The shares pay a monthly dividend of $0.04 each ($0.48 per year).

Tax implications:
Payments are eligible for the dividend tax credit.

Summing up:
Good income, limited growth potential. That’s Extendicare in a nutshell.
Ask your financial advisor if it is suitable for your account.

Gordon Pape
is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investor
newsletters, which are available through the Building Wealth website.

The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.